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MOODY'S ASSIGNS INITIAL Ba1 UNDERLYING RATING AND ENHANCED A2 RATING WITH A STABLE OUTLOOK TO WYANDANCH UNION FREE SCHOOL DISTRICT'S (NY) $2M GENERAL OBLIGATION BONDS, SERIES 2011

17 Aug 2011

Primary & Secondary Education
NY

Moody's Rating

ISSUE

UNDERLYING
RATING

RATING

School District (Serial) Bonds, 2011

Ba1

A2

  Sale Amount

$1,980,000

  Expected Sale Date

08/17/11

  Rating Description

General Obligation

 

Opinion

NEW YORK, Aug 17, 2011 -- Moody's Investors Service has assigned an initial Ba1 underlying rating and A2 with a stable outlook to Wyandanch Union Free School District's (NY) $2 million School District (Serial) Bonds, 2011. The bonds are secured by the district's unlimited ad valorem property tax pledge and will redeem $761,000 Bond Anticipation Notes and finance various capital improvement projects.

SUMMARY RATINGS RATIONALE

The Ba1 rating reflects the district's narrow reserve levels and limited liquidity position, limited tax base characterized by weak demographics, and a manageable debt position.

The A2 enhanced rating with a stable outlook is based upon the additional security provisions offered by New York State's Section 99-B school intercept program, which authorizes the state to withhold future allotments of state aid in order to make bond payments in the event of default by the school district. While the program does not ensure avoidance of a pending default or guarantee immediate repayment, Moody's believes it does enhance the potential for recovery upon default and that the cure period is likely to be short. The Ba1 rating reflects the district's pressured financial operations, modest tax base with below average wealth levels and manageable debt burden.

Effective January 1, 2012, all local governments in New York State will be subject to a property tax cap which limits levy increases to 2% or the rate of inflation, whichever is lower. While school district debt has been exempted from the cap, debt has not been exempted for all other local governments. Moody's will continue to treat all general obligation debt issued in New York as an unlimited tax pledge through the end of the year. We continue to research what the impact of the new property tax cap will be on debt issued by nonschool districts after it goes into effect next year. For more information regarding the property tax cap please reference the Special Comment "New York State's Property Tax Cap will Further Pressure Local Government Finances; School District's Most Impacted" released July 5, 2011.

STRENGTHS

-Reversal of deficit fund balance

CHALLENGES

-Modest tax base with depressed socioeconomic wealth indicators

-Exposure to declining state aid

-Narrow liquidity position

DETAILED CREDIT DISCUSSION

FINANCIAL POSITION PRESSURED DRIVEN BY NARROW RESERVES AND LIQUIDITY POSITION

Wyandanch Union Free School District's financial position is expected to remain challenged in the near term given limited cash position and narrow fund balance. The district ended two of the last four fiscal yearswith negative fund balance levels. In fiscal 2008, operations ended with a $2.6 million operating deficit, fully depleting $213,000 in reserves and generating a negative $2.5 million fund balance. The deficit was mainly driven by $2.5 million reduction in state aid. The district was notified of the impending shortfall, but did not make the comparable cuts in expenditures to preserve programs. Favorably, fiscal 2009 ended with a $1.1 operating surplus primarily due to one-time special state aid ($1.4 million). The fund balance deficit was reduced to a still challenged negative $1.76 million (-5.5% of revenues). Fiscal 2010 ended with an $805, 000 operating surplus due to conservative budgeting and implementation of cost controls. In addition, there was a $1.4 million prior adjustment of a portion of compensated absences, reclassified as long term liabilities (eligible retirees that are still employed and will not retiree within the year).

At recent fiscal 2011 (unaudited) close, management is projecting a $440, 000 operating surplus, increasing fund balance to a total of $1.1 million (2% of revenues). The surplus is driven by continued monitoring of expenditures and reductions in discretionary spending. Year-to-date, officials are not expecting to issue RANs due to slightly improved cash position. The budget was reduced by 3% and the tax levy increased by 4% to offset expenditure pressures and reduction in state aid ($1.7 million). The district will be challenged to end structurally balanced and given narrow reserves, strong dependency on state aid in an environment of cuts to local government. Future rating considerations will strongly include the district's ability to produced structurally balanced operations and augment reserves in line with budgetary growth.

RESIDENTIAL TAX BASE WITH BELOW AVERAGE WEALTH LEVELS

Growth within the district's tax base is expected to remain stable to slow over the intermediate term, given limited economic development and as a result of the national and regional softening of real estate markets and the continuation of a challenging economic outlook. The total assessed value for the district has declined at an average annual rate of -1.1% over the last five years. Further, full valuation has decreased at an average rate of 1.2% over the same time frame. Full value per capita is a moderate at $76,352, and wealth levels are well below state and national medians.

DEBT BURDEN EXPECTED TO REMAIN MANAGEABLE

Moody's expects the district's direct debt burden (1.2% of full value) to remain manageable, given above average amortization of principal (100% in ten years) and limited additional borrowing plans. The district's debt plans may include approximately $24.5 - $50 million over five years for various capital improvement projects. The district has no a variable rate debt obligation or derivative agreements.

What could make the rating change - UP

- Structurally balanced financial operations and increased financial reserves in-line with budgetary growth

- Tax base growth and demographic profile at levels

- Reduction in cash flow borrowing

What could make the rating change - DOWN

- Protracted structural budget imbalance

- Depletion of General Fund balance

- Deterioration of the district's tax base and demographic profile

KEY STATISTICS:

2000 Population: 10,725

2010 Full valuation: $893 million

Full value per capita: $76,352

Direct Debt Burden: 1.2%

Overall Debt Burden (after state school building aid): 2.6% (2.0%)

Payout of Principal (10 years): 100%

Fiscal 2010 General Fund Balance: $ 659,000 (1.2% of General Fund revenues)

Fiscal10 Unreserved Undesignated Fund Balance: $256,000 (0.5% of General Fund revenues)

1999 Per Capita Income (as % of State and U.S.): $13,301 (156.9% and 61.6%)

1999 Median Family Income (as % of State and U.S.): $43,229 (83.6% and 86.4%)

Post-sale parity debt outstanding: $10.8 million

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology .

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings and public information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Analysts

Andy Moleon
Analyst
Public Finance Group
Moody's Investors Service

Robert Weber
Backup Analyst
Public Finance Group
Moody's Investors Service

Geordie Thompson
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS INITIAL Ba1 UNDERLYING RATING AND ENHANCED A2 RATING WITH A STABLE OUTLOOK TO WYANDANCH UNION FREE SCHOOL DISTRICT'S (NY) $2M GENERAL OBLIGATION BONDS, SERIES 2011
No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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